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IMANET Exam CMA Topic 2 Question 108 Discussion
Actual exam question for
IMANET's
CMA exam
Question #: 108
Topic #: 2
[All CMA Questions]
Topic #: 2
The data available for the current year are given below.
using the information presented above, the contribution by Division I was?
Suggested Answer:
A
The NPV of both machines must be calculated and compared to determine which will yield a better return of cash flows. Machine A is calculated as one lump sum payable in 4 years minus the initial investment cost.
The NPV of Machine B is calculated as the present value of an ordinary annuity of
$13,000 for 4 years, minus the initial investment cost.
By comparing the NPV of both machines, Cliff would choose Machine A because NPV of A > NPV of B by $1,044.
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